Is Crypto Copy Trading a Scam?
Let’s Face the Elephant in the Room
What is Crypto Copy Trading Exactly? Is it a Scam?
After launching my copy trading service on the Zignaly platform and having a chance to experience first-hand how people approach the managed investment world in the crypto-space, I have noticed how copy-trading has still got some sort of stigma, as people not familiar with this investment form, tend to associate it with the infamous pump & dump groups or other similar scams that have characterized the early days of crypto, and sometimes are still running today.
So in this article, I will try to disambiguate the concept of what crypto copy trading is, and will explain why it something that you should take into serious account.
The general idea of copy trading is pretty simple: Choose the traders you want to copy on the designated platform (i.e. CryptoLivermore on Zignaly), connect your Exchange account via APIs, decide on the amount you wish to invest, and copy everything they do automatically, and in real-time.
As you have probably started realizing, this really has nothing to do with trading chats and/or groups where self-proclaimed gurus (usually Twitter scammers) sends their signal, often in a quite ambiguous way and clearly after having bought for themself first, so that they can dump on you as soon as they are in profit. Crypto copy trading is actually quite the opposite of this, in fact, anything that the trader does is fully transparent and recorded on the platform so that the copiers will be able to keep track of every single operation both in real-time and after the deal is done.
Specifically, this is what copy trading allows you to do, and its main characteristics:
- To copy each position that the trader you are following opens in real-time — 24/7 and automatically;
- Copying exactly their entry — stop loss positioning — take profits — exits, without you touching a single button;
- The trade will be copied in proportion to your account size (equal % size); this point is crucial for the copier to obtain positive results as this is the only way the trader’s risk and money management can work out for them. Be aware that not all the platforms offer this;
- The copiers can clearly see the trader’s realized PnL, open PnL and the stats for every single position ever opened by that provider, and very easily compare the performances among different traders;
- There is no way a trader can fake it, as the trades executed are mirrored in every detail on the copiers’ account and under everyone’s eyes.
This mechanism makes the trader’s reputation of utmost importance, and someone that is just attempting to get some fees out of less experienced investors without offering any real value, will 100% be spotted in the long run (or sometimes not that “long”). - Your money will stay on the exchange and it is technically not possible for either the trader or the copy trading platform to access it, as the APIs used are not enabled for withdrawal;
Now we have hopefully clarified how crypto copy trading is different compared to everything that you have seen so far in the crypto space, let’s touch on another sensitive topic.
Why a Trader Would Trade for Other People?
Once people understand what crypto copy trading is and how it could potentially benefit them, the next question that follows immediately after is:
“if a trader is as successful as he/she is saying to be in order for us to buy their service, why are they selling a service in the first place? They should be loaded by now, right?”
This question is understandable and something that I have asked myself many times too, but after some serious considerations, it turns out there’s plenty of very good reasons for a successful trader to start a (crypto) copy-trading service:
- To diversify their source of income and make it less volatile, which is also very helpful in order to feel less personally their account’s ups and downs and trade more efficiently and less emotionally;
- To create a source of income that will allow them not having to touch their trading account for living expenses, so that they can keep as much money as possible on it, which in terms, will allow the account to grow much faster, thanks to compounding, and if they really believe in what they are doing, they might even decide to put the extra income coming from their copy trading into their trading account;
- Being a successful trader doesn’t automatically mean “being rich”, this needs to be clarified once and for all. Especially in less developed countries, there can be many very promising traders that simply don’t have a large account to start with, and might take them a very long time to grow it. This is just one reason but there could be more good reasons for this point alone;
- Last but not least, some traders might simply do it in order to “give back”, to the >90% that statistically ends up losing in the markets;
To provide you with an example that helps further clarifying this concept, professional traders are no more, and no less than professional racing drivers, they can be the best in the world, but they won’t go far without a good car, especially if racing in a major league such as F1, with the difference than in the trader’s case the car is the pot of money made available by their investors/copiers, that are basically financing the venture through crowdfunding.
Louis Hamilton would have probably never become a multiple World champion without the McLaren (and Mercedes) racing team and hundreds of millions of dollars in investment, not because his talent would have been different, but simply because the barrier to entry was too high for a single individual to be competitive straight away. Now, after a successful career and after having made several million himself — you could compare that to crypto traders that have been in the market since before the 2013 pump — he could eventually decide to put up his own team and go on his own, if that’s what he wants. Exactly the same is true for a trader.
How Crypto Copy Trading is Different, and Why it Offers Umprecedent Opportunities to the Retail Investor?
As mentioned in the previous paragraph, crypto copy trading allows investors/copiers to fund professional traders through something very similar to crowdfunding, while receiving in exchange the chance to get a return on what they have invested, and this is a HUGE opportunity that once again crypto makes available to everyone and that, as usual, not many people have yet recognized.
The investment world in traditional finance has always been very limited and inaccessible to regular retail investors, as it was only available to the so-called accreditated investors and required some pretty high minimum capital amounts even to just be considered as a potential investor and have money managed professionally, for example by a hedge fund (not to buy Tesla stocks on Robinhood with your phone, that doesn’t count).
This is yet another sector being disrupted by crypto and the blockchain, but it is still so new that many people, understandably, need to first get their toes wet, and like everything related to markets, this will likely attract much, much more attention when some trader’s results really start to shine and pick up, just like when people see a coin pumping, reason why I have personally priced my service so that it will follow my performance in a linear fashion, therefore offering an extremely good deal to early adopters and increasing the price as my performance increases, but this is a different topic, if interested you can read more about it in the pricing section of my service.
Final Considerations
I hope this article has answered the most tricky questions related to crypto copy trading and has helped you clarify your doubts, but please comment below if there is still something else that you wish I had replied to in this article.
If you want to know more about the service that I am currently offering on the Zignaly platform you can check them out here, while if you have any other question, or simply want to reach out, feel free to contact me on Twitter or on my channel on the Zignaly Discord server.
In any event, see you in the Pit!
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Disclaimer (Terms and Conditions)
No part of this article has to be considered as financial advice and the author is not a certified financial advisor. Please contact a professional to be advised on your investments.
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